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Safety Nets for the Rich

By BOB HERBERT, NY Times, October 20, 2009

The headlines that ran side by side on the front page of Saturday’s New York Times summed up, inadvertently, the terrible fix that we’ve allowed our country to fall into.

The lead headline, in the upper right-hand corner, said: “U.S. Deficit Rises to $1.4 Trillion; Biggest Since ’45.”

The headline next to it said: “Bailout Helps Revive Banks, And Bonuses.”

We’ve spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government — while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they’ve wanted.

And we still don’t seem to have learned the proper lessons. We’ve allowed so many people to fall into the terrible abyss of unemployment that no one — not the Obama administration, not the labor unions and most certainly no one in the Republican Party — has a clue about how to put them back to work.

Meanwhile, Wall Street is living it up. I’m amazed at how passive the population has remained in the face of this sustained outrage.

Even as tens of millions of working Americans are struggling to hang onto their jobs and keep a roof over their families’ heads, the wise guys of Wall Street are licking their fat-cat chops over yet another round of obscene multibillion-dollar bonuses — this time thanks to the bailout billions that were sent their way by Uncle Sam, with very little in the way of strings attached.

Nevermind that the economy remains deeply troubled. As The Times pointed out on Saturday, much of Wall Street “is minting money.”

Call it déjà voodoo. I wrote a column that ran three days before Christmas in 2007 that focused on the deeply disturbing disconnect between Wall Streeters harvesting a record crop of bonuses — billions on top of billions — while working families were having a very hard time making ends meet.

We would later learn that December 2007 was the very month that the Great Recession began. I wrote in that column: “Even as the Wall Streeters are high-fiving and ordering up record shipments of Champagne and caviar, the American dream is on life support.”

So we had an orgy of bonuses just as the recession was taking hold and now another orgy (with taxpayers as the enablers) that is nothing short of an arrogantly pointed finger in the eye of everyone who suffered, and continues to suffer, in this downturn.

Whether P.T. Barnum actually said it or not, there is a sucker born every minute. American taxpayers might want to take a look in the mirror. If the epithet fits...

We need to make some fundamental changes in the way we do things in this country. The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.

We should be going even further. We’ve institutionalized the idea that there are firms that are too big to fail and, therefore, “we, the people” are obliged to see that they don’t — even if that means bankrupting the national treasury and undermining the living standards of ordinary people. What sense does that make?

If some company is too big to fail, then it’s too big to exist. Break it up.

Why should the general public have to constantly worry that a misstep by the high-wire artists at Goldman Sachs (to take the most obvious example) would put the entire economy in peril? These financial acrobats get the extraordinary benefits of their outlandish risk-taking — multimillion-dollar paychecks, homes the size of castles — but the public has to be there to absorb the worst of the pain when they take a terrible fall.

Enough! Goldman Sachs is thriving while the combined rates of unemployment and underemployment are creeping toward a mind-boggling 20 percent. Two-thirds of all the income gains from the years 2002 to 2007 — two-thirds! — went to the top 1 percent of Americans.

We cannot continue transferring the nation’s wealth to those at the apex of the economic pyramid — which is what we have been doing for the past three decades or so — while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.

That money is never going to trickle down. It’s a fairy tale. We’re crazy to continue believing it.

My Personal Credit Crisis

NOTE FROM GREETINGS: I published this NY Times article in conjunction with Bob Herbert's current article, which refers to this. A long, but worthwhile read. As this happens, on a personal note - I have great credit and bought a new house... but... the mortgage has been re-sold 3 or 4 times in the month since I have bought it. It went from a local broker to Bank of America, to Chase, to another intermediary, to Fanny Mae. How they expect to make money, given the evidence of the past 8 years, I don't know.

At the same time, my bank, BankNewport (I like to name names when things are clear) has raised overdraft fees and the ways in which they collect them. While they put me on online banking, they show a specific balance. I work off of that and my written records. HOWEVER.... they did not say, except in tiny print in a letter, that they HOLD portions of others' checks I deposit, and this allows them to claim a different balance. It has also caused me to incur, for the first time in my history with BankNewport, a series of overdraft fees. I will be looking for a new bank here.

By EDMUND L. ANDREWS, NY Times, May 17, 2009

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love. It was August 2004, just as the mortgage party was getting really good. I was 48 years old and eager to start a new chapter in my life with Patricia Barreiro, who was then my fiancée.

Patty was brainy, regal, sexy, fiery and eclectic. She was one of my closest friends when we were both students at an American high school in Argentina. Back then, we would talk together about politics and books at a coffee shop every day after school. We were not romantic in those days and went our separate ways after high school. But each of us would go through bruising two-decade-long marriages, and we felt that sweet spark of remembrance and renewal upon meeting again in middle age.

After a one-year bicoastal courtship, Patty was about to move from her home in Los Angeles to Washington. We would need a home with enough space for her two youngest children, as well as for my own teenage boys on the weekends. I had assumed we would start by renting a house or an apartment, but it quickly became clear that it was almost easier to borrow a half-million dollars and buy something.

Patty discovered a small but stately brick home in a leafy, kid-filled neighborhood in Silver Spring, Md. We sent in an offer of $460,000 and one day later got our answer: the sellers accepted. I felt both amazed and exhilarated, convinced that the stars had aligned for us. I loved the house as soon as I saw it. It was one block from a school and a park. My boys would be within a 15-minute drive, and it would be easy for them to come over and stay whenever they wanted.

The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.

But this was unlike any other time in history. My real estate agent gave me the number of Bob Andrews, a loan officer at American Home Mortgage Corporation. Bob wasn’t related to me, and I had never heard of his company. “Bob can be very helpful,” my agent explained. “He specializes in unusual situations.”

Bob returned my call right away. “How big a mortgage do you think you’ll need?” he asked.

“My situation is a little complicated,” I warned. I told him about my child support and alimony payments and said I was banking on Patty to earn enough money to keep us afloat. Bob cut me off. “I specialize in challenges,” he said confidently.

As I quickly found out, American Home Mortgage had become one of the fastest-growing mortgage lenders in the country. One of its specialties was serving people just like me: borrowers with good credit scores who wanted to stretch their finances far beyond what our incomes could justify. In industry jargon, we were “Alt-A” customers, and we usually paid slightly higher rates for the privilege of concealing our financial weaknesses.

I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.

Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”

What about my alimony and child-support obligations? No need to mention them. What would happen when they saw the automatic withholdings in my paycheck? No need to show them. If I wanted to buy a house, Bob figured, it was my job to decide whether I could afford it. His job was to make it happen.

“I am here to enable dreams,” he explained to me long afterward. Bob’s view was that if I’d been unemployed for seven years and didn’t have a dime to my name but I wanted a house, he wouldn’t question my prudence. “Who am I to tell you that you shouldn’t do what you want to do? I am here to sell money and to help you do what you want to do. At the end of the day, it’s your signature on the mortgage — not mine.”

You had to admire this muscular logic. My lenders weren’t assuming that I was an angel. They were betting that a default would be more painful to me than to them. If I wanted to take a risk, for whatever reason, they were not going to second-guess me. What mattered more than anything, Bob explained, was a person’s credit record. History seemed to show that the most important predictor of whether people defaulted on their mortgages was their “FICO” score (named after the Fair Isaac Corporation, which developed the main rating system). If you always paid your debts on time before, the theory went, you would probably keep paying on time in the future.

Bob’s original plan was to write two mortgages, one for 80 percent of the purchase price and a piggyback loan for 10 percent. I would kick in the final 10 percent, cashing out a chunk of New York Times stock — my last. If I had been a normal borrower, the whole deal would have sailed through at a low interest rate. My $120,000 base salary and my assets were easy to document. But given my actual income after alimony and child support, I couldn’t possibly have qualified for a standard mortgage. Bob’s plan was to write a “stated-income loan,” or “liar’s loan,” so that I wouldn’t have to give the game away by producing paychecks or tax returns.

Unfortunately, Bob’s plan hit a snag a few days later. “Ed, the underwriters say that your name is on another mortgage,” he told me. “That means you’re carrying too much debt.”

The mortgage was on my old house, which I had turned over to my ex-wife. As part of our separation agreement, she accepted full legal responsibility for making the payments. But the separation agreement also spelled out exactly how much I had to pay each month to my ex-wife. If we showed it to the underwriters, they would reject me.

Bob didn’t get flustered. If Plan A didn’t work, he would simply move down another step on the ladder of credibility. Instead of “stating” my income without documenting it, I would take out a “no ratio” mortgage and not state my income at all. For the price of a slightly higher interest rate, American Home would verify my assets, but that was it. Because I wasn’t stating my income, I couldn’t have a debt-to-income ratio, and therefore, I couldn’t have too much debt. I could have had four other mortgages, and it wouldn’t have mattered. American Home was practically begging me to take the money.

Despite the obvious red flag of applying for a Don’t Ask, Don’t Tell loan, I wasn’t paying that much for the money. The rate on my primary mortgage of $333,700 was a remarkably low 5.625 percent for the first five years, though my monthly payments would probably jump substantially after the fifth year. On top of that, I was paying a much higher rate of 8.5 percent on my “piggyback” loan for $80,300. Even so, I would be paying slightly more than $2,500 a month for the first five years. It would get expensive eventually, but I could worry about that later.

“Don’t worry,” Bob reassured me, saying what almost everybody else in real estate was saying at that moment. “The value of your house will be higher in five years. You’ll be able to refinance.”

As I walked out of the settlement office with my loan papers, I couldn’t shake the sense of having just done something bad . . . but also kind of cool. I had just come up with almost a half-million dollars, and I had barely lifted a finger. It had been so easy and fast. Almost fun. I couldn’t help feeling like a high roller, a sophisticated player who could lay his hands on big money at a moment’s notice. Despite my nagging anxiety about the gamble that Patty and I were taking, I had whipped through the pile of loan documents in less than 45 minutes.

***

The icy slap of reality hit me two weeks after New Year’s Day in January 2005. We had been living in our new house for five months. I walked out of The Times’s Washington bureau, several blocks from the White House, and crossed Farragut Square to my bank. I had a bad feeling about what the A.T.M. would reveal about my balance, but I was shocked when I looked at the receipt: $196. We were broke.

My stomach churning, I reached Patty on her cellphone as she was running errands. “We are out of money,” I snapped, skipping over any warm-up chat.

“What do you mean, we’re out of money?” she asked in bewilderment.

“I mean, I just checked my bank account, and we are out of money,” I repeated, my voice rising in panic. “We can’t buy anything!”

My next paycheck would come in about a day or so, but that was entirely reserved for the February mortgage payment. We didn’t have enough cash to cover more than a week’s worth of groceries and gasoline. For the last few months we were living off the cash left over after I sold my Times stock and we bought the house. But now it was gone.

“How the hell could we have run through so much money so quickly?” I asked her accusingly.

Patty wasn’t sharing my shock. “I don’t know what’s going on,” she responded. “Let’s talk about it when you get home.”

Patty had spent much of the two previous decades as a stay-at-home mother in Los Angeles. Her last full-time job, as an editor at a political research company, was back in the early 1980s. Not surprisingly, Patty’s re-entry into the job market was bumpy. When Saks Fifth Avenue offered her a full-time job selling high-end clothing on commission — something she knew about and loved — she grabbed it. But with her take-home income averaging only about $2,400 a month, we didn’t make enough to cover our bills because my take-home pay was going straight to the mortgage. We were spending way more than we were earning.

In the euphoria of moving in together, we both succumbed to magical thinking about ourselves, as well as about money. My fantasy was that Patty would become an ambitious go-getter. “This can really be an exciting new chapter of your life,” I kept telling her. Patty had a very different dream. “I feel as if I am finally at home,” she exclaimed as soon as we moved into the house. She could settle down and do the things she had always been best at: making a new home, nurturing her children and loving me. One way or another, she figured, we would earn enough money to make good on our glorious gamble.

We had very different ideas about money. Patty spent little on herself, but she refused to scrimp on top-quality produce, Starbucks coffee, bottled juices, fresh cheeses and clothing for the children and for me. She regularly bought me new shirts and ties to replace the frayed and drab ones in my closet. She thought it wasn’t worth agonizing over nickels and dimes. I was almost exactly the opposite. My answer to any money squeeze was to stop spending. I would skip lunch at work to save $7. If I arrived at the Metro just before the end of rush hour, I would wait for five minutes to save 50 cents on the fare.

We were both building up grudges. “You can’t keep second-guessing me,” she told me angrily. “It’s small-minded and petty, and it’s not very attractive.” I was beginning to wonder whether she had any clue about how money worked. We were lurching from paycheck to paycheck, one big home repair away from disaster.

Meanwhile, neither of us was paying attention to how easy our bank had made it to build up debt. The key was the overdraft protection — more accurately described as “bounced-check loans.” Every time I overdrew my checking account by even a few dollars, the bank would tap my MasterCard for $100, helpfully deposit the cash in my account and charge me $10 for the privilege.

Patty and I were now unwittingly tapping into our credit line at a terrifying pace: $5 overdrawn because of school supplies for Patty’s daughter Emily — $100 from the MasterCard. Fifteen bucks over because of gasoline? Another $100 from the MasterCard. Groceries for $305? No problem! Uncle MasterCard would front us $400.

Our debt spiraled up faster than I had ever dreamed possible. Chase Bank had cold-called me to offer a “platinum” card with no interest charges for the first six months. I took them up on it and shifted $3,000 in debt from my old card onto the new Chase card. But instead of paying down the balance before the interest charges began, I let it balloon to $6,000. Chase had sent us blank checks that we could use to either pay bills or give ourselves cash advances. I dismissed them as a cheap trick to lure dimwits into borrowing more money. In March, I grabbed one of the checks and used it to pay down $1,000 on my more expensive credit card.

***

I felt like a crack addict calling up my dealer. It was April 2006, and I had just reached Bob Andrews, our once and future mortgage broker, on his cellphone.

I was surprised at how glad I was to hear his voice. In his own way, Bob knew more about my messy life than almost anybody else. He never seemed judgmental or condescending. Instead, he seemed to think that money trouble and failed marriages were natural parts of life, even for good people with decent jobs. I felt relieved to have the chance to unload my problems and ask for his advice.

“Bob, we’re dying over here,” I wailed. “I can’t even explain how it happened, but we’ve got these unbelievable credit-card bills, and the minimum payments add up to almost $1,100 a month. There’s no way we can keep that up.”

I had months and months of credit-card bills spread across the dining-room table, and I quickly confessed the full horror of what they contained. We were approaching $50,000 in credit-card debt alone, and it was amazing how fast and how deeply we had dug ourselves in. It was even more amazing how long we had avoided the screaming evidence of a train wreck in the making.

Patty had suddenly got the break that seemed to solve our problems. In November 2005, she was hired as a full-time editor at a nonprofit organization with a salary of $60,000 a year. The problem, I told Bob, was that things were so bad that even Patty’s new job wouldn’t be enough to rescue us. Chase was now charging us 13.99 percent on our platinum card, and the rate on our SunTrust card was up to 27 percent.

Between humongous loan balances and high rates, we had hung ourselves with the rope they gave us. In the previous December alone, we charged $2,845 on the Chase card for Christmas gifts, food, gasoline, clothing and other expenses. The charges included almost $350 for groceries, $700 in clothes from J. Crew, $179 at GapKids and $700 for airplane tickets for two of Patty’s children to visit their father in Los Angeles. Our balance climbed from $14,118 to $17,135, and in January 2006 we maxed out at our $19,000 credit limit. And there were other expenses on other cards: $1,200 in dental work for Patty’s son Ben; $1,600 to rent a beach house the previous year for us and all the children. Granted, the beach house was an embarrassing mistake. But given that Patty had landed a solid job, it seemed like an indulgence we could work off later.

I felt foolish, ashamed and angry as I confessed to Bob. Why had I been trying to live a lifestyle that I couldn’t afford? Why had I tried to keep up the image of a conventional suburban family man, when nothing about my situation was conventional? How could I have glossed over the fact that we had been spending about $3,000 more than we were earning, month after month after month? How could a person who wrote about economics for a living fall into the kind of credit-card trap that consumer groups had warned about for years?

“My inclination is to just raid my 401(k) account to pay off the cards,” I told Bob. “I know we’d be paying huge taxes and penalties for withdrawing money before retirement, but it’s not as bad as paying all that interest to the banks.”

“No!” Bob interrupted fiercely. “You don’t want to do that. You’ll be paying a basic tax rate of 28 percent, and they’ll hit you with another 10 percent penalty. You’d be giving up 40 percent in taxes. There’s got to be a better way.”

I gave Bob permission to pull a credit report on us, and by the next day, he had come up with a scheme that was either wickedly smart or proof that the big-money people had gone mad. Or both.

“What we’re going to do is a two-step plan,” he announced. “The bad news is that your credit scores are down, so we can’t just do a simple refinance. But the good news is that you’ve owned your house for a year and a half, and it’s gone up in value. So you can borrow against the equity. So in the first step of the plan, we’re going to get you a really ugly mortgage that is big enough to pay off all your credit cards.”

“O.K., I’m with you so far,” I said uncertainly.

“Now, because this mortgage is really ugly, your monthly payments will jump to about $3,700. But don’t worry about it, because you’re only going to stay in it for about three months. Once we pay off your credit cards, your credit scores will go up and we can get you a cheaper loan.”

The way Bob figured it, my monthly payment would be down to about $3,200 by the fall. The new mortgage would be nearly $700 more than my current mortgage because it would include all my credit-card debt, but it would be at least $500 a month less than the combined total of what I was paying on everything right then. And mortgage interest, unlike interest on credit-card debt, is entirely tax-deductible.

The whole plan worked exactly as Bob had predicted. Within a few weeks, an appraiser valued our house at $505,000, almost 10 percent above the original purchase price two years earlier. On June 12, Patty and I signed a new mortgage for $472,000 with Fremont Investment and Loan in Santa Monica, Calif.

Fremont gave us a classic subprime loan. Our monthly payment jumped to $3,700 from $2,500. If we kept the mortgage for two years, the interest rate would jump as high as 11.5 percent, and the monthly payments would ratchet up to as high as $4,500.

The paperwork was so confusing that I was never exactly sure who was paying what. I hazily understood that I was paying most of the fees, one way or another, but I couldn’t figure out how, and I couldn’t see any better alternatives. After it was all over, I figured we had paid about $5,800 in fees to Bob’s mortgage company and the settlement company, on top of the sales commission that came out in higher interest rates every month. But Patty and I paid off our credit cards, and my credit scores jumped. In October 2006, Bob refinanced us once again, and our payments dropped just as he had predicted.

***

We were still loaded with debt, but we weren’t paying 27 percent interest rates on our credit cards. Patty was earning a solid salary, and I was earning extra money working overtime at The Times. If we were careful, we could meet our monthly expenses, chip away at our debt and even go out to dinner once in a while.

Our brief interlude of optimism and peace ended on Oct. 10, 2006, when Patty lost her job. “Don’t worry,” she said bravely. “This will not be like the first time I was looking for a job. I’ve learned so much since then, and I am going to find another job quickly.” In the meantime, she said, she could collect unemployment for six months. She would also cash out her retirement account, which had about $7,000 in it.

By any measure, the loss of Patty’s job was a financial catastrophe. We hadn’t yet gone more than 30 days delinquent on the mortgage, thanks, in part, to $15,000 I had borrowed shamefacedly from my mother after Patty stopped working. But we were behind on everything else. Bill collectors were calling six days a week, starting promptly at 8 a.m. “Telemarketers,” I would mumble when my son Matthew asked why we got so many robocalls from 800 numbers. Our stately little house looked increasingly trashy: peeling paint and broken screens on the front windows, crumbling concrete on the front stoop, a lawn that was mostly crabgrass. The furniture that Patty salvaged from her first marriage was falling apart. The cotton slipcovers on the sofa and armchair were in shreds. The frosted-crystal shade on a beloved Italian floor lamp was cracked. The dog had gnawed the leg on her Biedermeier chair.

The panic attack hit me around 2 a.m. on Patty’s birthday. It was Oct. 17, 2007, and I was lying in bed obsessing over bills that couldn’t be postponed and the money we didn’t have to pay them. Like many of my predawn fear cascades, this one had its start with a specific unpaid bill: $240 in traffic tickets — $140 for speeding, $50 each for expired tags and inspection. The fines would double if we didn’t pay them in less than a week. The tickets had uncorked the bottle on all the other “must pays”: the $400 electric bill with the cutoff date printed in red; the $220 cable/telephone/Internet bill for the past two months; the MasterCard and American Express bills — at least one of which had to be brought current or I wouldn’t even be able to travel for work. And of course, there was the $3,271 mortgage payment.

My panic circuitry was in fine form, connecting small debts to big ones, short-term problems to the bottomless abyss, private calamity to public shame. Once Patty was asleep and I was alone in the dark, the bottled-up fear reached the surface. I tossed from side to side, trying to figure out at least a triage plan for our bills. I was too fidgety to lie still in bed, but I was in no mood to actually sit down with the bills themselves. I climbed out of bed for a moment, then jumped back in. I couldn’t decide if I would rather feel confined or all alone.

Patty woke up, irritated by all my movement and my occasional moans of despair. “What’s the matter?” she asked.

“I can’t sleep,” I answered. “I’m panicking about money, because I don’t know how we’re going to pay all the bills that need to be paid right now.” I wanted her to take me in her arms and reassure me that everything would be O.K. But that wasn’t happening.

“There’s nothing you can do about it right now,” she answered sleepily.

“If this keeps on, we’re going to lose the house,” I persisted, sounding less panicked than petulant. If Patty wouldn’t give me comfort, then I wanted her to suffer alongside me. “I don’t know how we’re going to make it. We can’t go on like this.”

Patty had begged me to grant her a birthday reprieve from my nagging and kvetching over money issues. What I saw as an uncontrollable moment of panic, she saw as another deliberate attempt to browbeat her.

“I can’t believe you are doing this to me on my birthday,” she hissed in fury. “All I asked for was one day of peace — one day when you weren’t beating me over the head. And here it is, not even daylight yet, and you’re waking me up to berate me about money.”

“Son of a bitch, what did I do to you?” I asked, punching my pillow in the dark. “Do you think I enjoy having a panic attack? I can’t help what I’m feeling. I’m just scared out of my mind.”

“That’s it!” Patty snapped, getting out of bed and pulling on her robe. “I’m not going to listen to any more of this. I’m going to sleep downstairs.”

In the morning, she let me have it.

“You lied to me,” she told me as I got coffee. “You said that what I saw on the outside was pretty much what you were. But you’re completely different. If I had known what you were really like, I would never have come out here.”

Patty and I were hurtling toward bottom. We had been under so much strain for so long that we were often at each other’s throats, jeopardizing the love that brought us together in the first place. In November, four years after buying the house, we finally crossed our personal Rubicon and fell 30 days behind on our mortgage.

“The last thing Chase wants is to foreclose on your home,” JPMorgan Chase wrote us. It assured us that it wanted to “help” and was willing to evaluate us for a number of “alternatives.” If we didn’t “resolve” our payment delinquency, it politely warned, “you will lose your home.”

***

I took a certain pride that I outlasted two of my three mortgage lenders. American Home, my original lender, collapsed overnight when the financial markets first froze up in August 2007. Fremont, my second lender, was forced out of the mortgage business by federal regulators. That left me with JPMorgan Chase, one of the few big banks smart enough to sell off most of the subprime loans it financed. It still serviced my loan, but it wasn’t on the hook if I defaulted.

By the time that Patty and I fell behind, the rest of the world was falling apart so fast that Chase barely had time for us. Bear Stearns and Lehman Brothers were gone. American International Group, one of the world’s biggest insurance conglomerates, received the biggest taxpayer-financed bailout in history. Citigroup was a zombie bank. All of them were brought down by the same mortgage madness that infected me.

When I first called Chase in October, a representative named Sarah said I didn’t qualify for a loan modification because I wasn’t yet 90 days past due. The only “loan modification” she could offer me was a “repayment plan” under which I paid $400 more per month for six months until I was current again.

“It sounds as if I would be better off waiting to fall 90 days behind,” I said. “I think I’ll wait for that.”

It took a while, but Patty and I found we could get past blaming each other. We had seen each other’s worst sides, but we were still together, and that helped us to get closer. We started listening to each other. Patty began to find her way in the work world, and I was learning that I didn’t have all the answers. And we saw how our children were thriving. My three sons transferred to schools in our neighborhood and made scores of friends. Emily, Patty’s daughter, was a sparkling 10-year-old who loved her home and her school as well as all her brothers. Even if we lost the house, we had gained in other ways.

I called Chase back in January, when I was 90 days past due. Another representative told me that I would automatically be evaluated for a loan modification.

“You should just wait until you hear from one of our negotiators,” he told me politely.

Another two months passed without anyone calling, so I tried again in late March.

“I’m sorry, but our analysts have been backed up,” yet another Chase rep told me, even more politely than the previous one. She said each analyst had about 500 distressed borrowers to deal with, and it had been taking about five weeks for customers to get a direct response. The delays seemed to be getting longer.

I was actually beginning to feel sorry for Chase. It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.

Edmund L. Andrews is an economics reporter for The Times and the author of “Busted: Life Inside the Great Mortgage Meltdown,” which will be published next month by W.W. Norton and from which this article is adapted.

Promised Help Is Elusive for Some Homeowners

By PETER S. GOODMAN

MESA, Ariz. — She had seen the advertisements for the new government program offering relief. She had heard President Obama promise that help was on the way for homeowners like her, people who had lost jobs and could no longer make their mortgage payments.

But when Eileen Ulery called her mortgage company — Countrywide, now part of Bank of America — the bank did not offer to alter her mortgage. Rather, the bank tried to sell her a new loan with a slightly lower monthly payment while asking her to pay $13,000 toward the principal and a fresh $5,000 in fees.

Her problem was that she did not yet present a big enough problem to merit aid.

Yes, she was teetering toward delinquency. She was among millions of homeowners rapidly sliding toward danger for whom the Obama administration had devised an aid program — some already in foreclosure proceedings, others headed that way as they ran out of means to make their payments. But unlike those in imminent peril of losing their homes, Ms. Ulery had never missed a payment.

“I don’t know who this bailout is helping,” she said. “We’ve given these banks all this money and they’re not doing what they say they’re doing. Something’s not working right. They keep saying they’re doing all this, but we don’t see it down here at this level.”

More than three months after the Obama administration outlined a new program aimed at rescuing millions of distressed homeowners by compensating banks that modify mortgages, Ms. Ulery’s experience illustrates the mixture of confusion, frustration and limited assistance that now reigns.

Through many months of wrangling over the fate of the financial system, with hundreds of billions of taxpayer dollars dispensed on bailouts, distressed homeowners have waited for their own rescue amid talk that it was finally on the way. Modifications of so-called subprime and Alt-A mortgages — those made to people with tarnished credit — actually fell by 11 percent in May from April, according to research by Alan M. White at Valparaiso University School of Law.

A Treasury spokeswoman, Jenni Engebretsen, confirmed that homeowners like Ms. Ulery — current on their mortgages yet grappling with a hardship like unemployment — were eligible for loan modifications under the program. She said mortgage servicers had offered to modify more than 100,000 loans since the department announced the program.

But how many loans have been modified? Ms. Engebretsen declined to say, noting that the Treasury was working with mortgage companies to “fine-tune reporting systems.”

A spokesman for Bank of America Home Loans, Rick Simon, confirmed that the bank offered Ms. Ulery refinancing and not loan modification. The bank is now focusing on modifications only for those borrowers “who are already in severe threat of foreclosure,” he said.

“We’re still putting the systems in place to handle people who are current on their loans,” Mr. Simon said, declining to say how many loans Bank of America had modified. “It’s still very, very early in the program.”

Ms. Ulery, 63, is the face of the latest wave of troubled American homeowners, a surge of people in financial danger not because of reckless gambling on real estate, but because of lost income.

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

For two decades, she worked as an executive assistant at nearby Arizona State University, bringing home more than $1,000 every other week — enough to pay the bills.

Round-faced, wry and given to staccato bursts of laughter, Ms. Ulery regularly visits yard sales, seeking out plates and patchwork quilts for her collections. She takes pleasure in her two grandchildren and her beagle. She enjoys an occasional glass of wine, favoring a $6 merlot that comes in a screw-top bottle.

“I’m not an extravagant-type person,” she said. “I see these big houses all around, and they’re beautiful, but I’m comfortable in my little condo.”

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

Over the years, her monthly payment swelled from about $600 to more than $1,000. With planning and self-control — she tracks her monthly expenses on a color-coded spreadsheet — she always came up with the money. “I’ve never been late,” she said.

But the equation broke down last year, when she lost her job in university budget cuts. Ms. Ulery received six months of severance. She arranged a monthly $1,500 Social Security check. But when the severance ran out in October, her mortgage finally exceeded her limited means.

With so many people out of work, and with her doctor counseling rest for a stress-related illness, she did not pursue another paycheck, negotiating to have her university pension begin earlier. She has been leaning on credit cards.

Across the country, millions of homeowners in similar straits have been sliding into delinquency. Some owe more than their houses are worth.

Ms. Ulery is among that unhappy cohort — her house is worth about $122,000, and she owes $143,000 — but walking away is not for her.

“In my family, we don’t do that,” she said. “You pay your bills. And I wanted my home.”

In March, she heard about the Obama administration program. The Countrywide Web site directed her to a government site, makinghomeaffordable.gov, she said. There, she took a test to determine her eligibility for a loan modification.

Was her home her primary residence? Check. Was she having trouble paying her mortgage? Check again, and so on until the screen told her that she might qualify.

In April, she called the bank. The representative said the bank was not doing modifications for people like her, she recalled. He shifted the conversation: if she handed over $18,000, he could lower her payment to $967 from $1,046. Her interest rate would actually increase slightly, with the drop largely because she was putting down more money.

“I just laughed,” Ms. Ulery said. “It was a really good deal for them.”

To which she poses her own question: What sort of deal is it for the American taxpayer? As she sees it, the same banks that generated the mortgage crisis are now getting public money to fix it, while doing little more than seeking new fees.

“I don’t think the government gets it,” she said. “These are the same people you couldn’t trust before.”

I Ponied Up for Sheryl Crow?

By MAUREEN DOWD, NY Times

LOS ANGELES

Talk about being teed off.

The economy is croaking and bankers are still partying at a golf tournament here on our dime.

It’s a good argument for nationalization, or better yet, internationalization. Outsource the jobs of these perfidious, oblivious bank executives to Bangalore; Bollywood bashes have to cost less than Hollywood ones.

The entertainment Web site TMZ broke the story Tuesday that Northern Trust of Chicago, which got $1.5 billion in bailout money and then laid off 450 workers, flew hundreds of clients and employees to Los Angeles last week and treated them to four days of posh hotel rooms, salmon and filet mignon dinners, music concerts, a PGA golf tournament at the Riviera Country Club with Mercedes shuttle rides and Tiffany swag bags.

“A rep from the PGA told us Northern Trust wrote one big, fat check in order to sponsor the event,” TMZ reported.

Northern No Trust had a lavish dinner at the Ritz Carlton on Wednesday with a concert by Chicago (at a $100,000 fee); rented a private hangar at the Santa Monica Airport on Thursday for another big dinner with a gig by Earth, Wind & Fire, and closed down the House of Blues on Sunset Strip on Saturday (at a cost of $50,000) for a dinner and serenade by Sheryl Crow.

In the ignoble tradition of rockers who sing for huge sums to sketchy people when we’re not looking, Crow — in her stint as a federal employee — warbled these lyrics to the oblivious revelers:

“Slow down, you’re gonna crash,
Baby, you’re a-screaming it’s a blast, blast, blast
Look out babe, you’ve got your blinders on ...
But there’s a new cat in town
He’s got high payin’ friends
Thinks he’s gonna change history.”

Northern Untrustworthy even offered junketeers the chance to attend a seminar on the credit crunch where they could no doubt learn that the U.S. government is just the latest way to finance your deals and keep your office swathed in $87,000 area rugs.

In what is now an established idiotic ritual of rationalization, the bank put out a letter noting that it “did not seek the government’s investment” even though it took it, and that it had raised $3 million for the Los Angeles Junior Chamber of Commerce Charity Foundation and other nonprofits. They riposted that they have a contract to do it every year for five years; but this isn’t every year.

The bank cloaks itself in a philanthropic glow while wasting our money, acting like the American Cancer Society when in fact it’s a cancer on American society.

It asserted that it earned an operating net income of $641 million last year and acted as though it did Americans a favor by taking federal cash.

I would ask Northern No Trust: If you’re totally solvent, why are you taking my tax dollars? If you’re not totally solvent, why are you giving my tax dollars to Sheryl Crow?

Coming in a moment when skeptical and angry Americans watched A.I.G., Citigroup, General Motors and Chrysler — firms that had already been given a federal steroid injection — get back in line for more billions, the golf scandal was just one more sign that the bailed-out rich are different from you and me: their appetites are unquenchable and their culture is uneducable.

President Obama served them notice on Tuesday night in his Congressional address, saying: “This time, C.E.O.’s won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.”

But will they notice?

John “Antique Commode” Thain had to be ordered by a judge to tell Andrew Cuomo’s investigators which Merrill Lynch employees got those $3.6 billion in bonuses that Thain illicitly shoved through as his firm was failing and being taken over by Bank of America with the help of a $45 billion bailout. Kenneth Lewis, the Bank of America C.E.O., made the absurd assertion to Congress that his bank had “no authority” to stop the bonuses, even though he knew about them beforehand.

“They find out they’re $7 billion off on the estimate of losses for the fourth quarter and they never think maybe we should go back and adjust these bonuses?” Cuomo told me, as Thain was finally responding to investigators on Tuesday at the New York attorney general’s office. “He refused to answer questions on the basis that ‘the Bank of America didn’t want me to.’ You can take the Fifth Amendment or you can answer questions. But there’s no Bank of America privilege. The Bank of America doesn’t substitute for the Constitution. And who’s the Bank of America, by the way?”

He gets incensed about how ingrained, indoctrinated and insensitive the ex-masters of the universe are. “They think of themselves as kings and queens,” he said. And they’re not ready to abdicate.

Usury, or the (New) American Way?

Merriam-Webster's Dictionary
usury
One entry found.
usury Main Entry: usu·ry Pronunciation: \ˈyü-zhə-rē, ˈyüzh-rē\
Function: noun
Inflected Form(s): plural usu·ries
Etymology: Middle English usurie, from Anglo-French, from Medieval Latin usuria, alteration of Latin usura, from usus, past participle of uti to use
Date: 14th century
1archaic : interest
2: the lending of money with an interest charge for its use; especially : the lending of money at exorbitant interest rates
3: an unconscionable or exorbitant rate or amount of interest; specifically : interest in excess of a legal rate charged to a borrower for the use of money

Note from Greetings:
As you read the following article on this holy of times, please bare in mind the above definition of "usury", and think of the credit card companies who are now charging upwards of 30 percent interest on their debts. This, to me, is creating a living "debtors' prison", not seen since the times of Charles Dickens - or at least John D. Rockefeller.

Having grown up in the 50's and 60's, I remember my parents, who grew up in the 20's and 30's, talking about the people who were out of work, losing their homes, and who were in debt to people my parents called "loan sharks"... people, usually criminals, who would give loans to those who could not afford them, and then charge rates my parents found incredible... 30 percent or more! (Hmmm... can you hear me Bank of America, Advanta, and the others?) Then, it was thought to be criminal.

How did we get to a point where the banks have now taken on that outlandish rate of interest, and are beginning to foreclose on mortgages? How have we arrived at a time that is starting to remind me of the oncoming of the great depression, which left millions homeless, jobless (or with lesser jobs), and in neverending debt.

And how does one get out of debt at 30 percent interest on WalMart wages? How did Congress and this President allow the banks to first convince the government to pass a bill not allowing Americans to declare bankruptcy, and then to get government to look the other way when the banks raised their interest rates to usurous levels, often depriving people of food and shelter.

And how did they allow jobs of Americans to go overseas (or manipulate them to go overseas), leaving those in debt with paltry wages and often without insurance, giving them only a credit card with which to pay many of those debts?

And ... what will Congress or the next President do about this?

I, personally, look forward to a future where I can wish everyone Merry Christmas, knowing that they have a roof over their heads, food to eat, and a government that will protect them from things we thought only happened in the times of Dickens or the Great Depression. But, still... Merry Christmas... to all...and to all a good conscience. (AP article follows)


Unpaid Credit Cards Bedevil Americans

By RACHEL KONRAD and BOB PORTERFIELD, Associated Press Writers. December 23rd, 2007

SAN FRANCISCO - Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

"Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa," said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. "We're starting to see leaks now."

The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.

At the same time, defaults _ when lenders essentially give up hope of ever being repaid and write off the debt _ rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.

Serious delinquencies also are up sharply: Some of the nation's biggest lenders _ including Advanta, GE Money Bank and HSBC _ reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors _ similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.

Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation's banks, which continue to flood Americans' mailboxes with billions of letters monthly offering easy sign-ups for new plastic.

Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.

But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans' ability to juggle growing and expensive credit card debt.

The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.

Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.

Many economists expect delinquencies and defaults to rise further after the holiday shopping season.
Mark Zandi, chief economist and co-founder of Moody's Economy.com Inc., cited mounting mortgage problems that began after this summer's subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.

"Credit card quality will continue to erode throughout next year," Zandi said.

Economists also cite America's long-standing attitude that debt _ even high-interest credit card debt _ is not a big deal.

"The desires of consumers to want, want, want, spend, spend, spend _ it's the fabric of our nation," said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. "But you always have to pay the piper, and that can be a very painful process."

Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 _ where debts can be wiped out entirely _ except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.

Personal finance coaches say the problem is most grave for individuals who are months delinquent or already in default _ like Kenneth McGuinness, a postal clerk from Flushing, N.Y.

His credit card struggles began nine years ago, when he charged his son's college tuition and books. He thought he was being clever: His credit card's 6 percent "teaser" interest rate was lower than the 8.6 percent interest on a college loan.

McGuinness, 61, soon began using Citibank and Chase cards for food, dental work and copays on doctor visits and minor surgeries. Interest rates surged to 30 percent. Now he's $37,000 in debt and plans to file for bankruptcy in February.

"I tried to pay what I could and go after the high-interest accounts first," McGuinness said. "But it just kept getting higher and higher, and with late charges and surcharges I was going backward."

In the wake of the jump in defaults on subprime mortgage loans made to borrowers with poor credit histories, banks have been less willing to allow consumers to consolidate credit card debt into home equity loans or refinanced mortgages. That is leaving some with no option but to miss payments, economists said.

Investors also are backing away from buying securitized credit-card debt, said Moshe Orenbuch, managing director at Credit Suisse. But that probably has more to do with concerns about the overall health of the U.S. economy, he said.

"It's been getting tougher to finance any kind of structured finance _ mortgages, automobile loans, credit cards, student loans," said Orenbuch, who specializes in the credit industry.

Capital One Financial Corp. reported that delinquencies and defaults are highest in regions where troubled mortgages are concentrated, including California and Florida.

Among the trusts examined, Bank of America Corp. had the highest delinquency volume, with overdue accounts valued at $5 billion. Bank of America defaults in October were almost 200 percent higher than in October 2006.

A spokesman for Charlotte, N.C.-based Bank of America declined to comment.

Other trusts _ including those linked to Capital One, American Express Co., Discover Financial Services Co. and those containing "branded" cards from Wal-Mart Stores Inc., Home Depot Inc., Lowe's Companies Inc., Target Corp. and Circuit City Stores Inc. _ also reported striking increases in year-over-year delinquency and default rates for October. Most banks and other financial institutions holding credit card debt on their own books also reported double-digit increases in delinquencies.

The one exception in October was JPMorgan Chase & Co.'s credit card trust, which reported declines in both delinquencies and defaults. A Chase spokesperson attributed this to its focus on prime borrowers and aggressive account management.

By contrast, Capital One executives told analysts last month that the company projected 2008 write-offs of credit card debt to be at least $4.9 billion. This projection, analysts were told, took into account growing delinquencies and potential effects if the housing market continued its downward slide.

Capital One spokeswoman Julie Rakes said the increase in delinquencies could be due to an accounting change last summer, which shortened the grace period between when statements were issued and the due date.

Capital One also reported that the number of accounts 90 days or more in arrears had increased between October and November. More than 1.2 million of Capital One's 30 million accounts were either delinquent or in default.

Many personal financial coaches expect this trend to accelerate in 2008 _ particularly among people who took out untraditional loans whose interest rate has risen, requiring owners to pay mortgages several hundred dollars more than just a year ago.

"You're looking at more and more distress _ consumers desperately trying to preserve their credit lines, but there's nowhere else to go," said Robert Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology. "It's like a game of dominoes."

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.